Digitalwall: The Web 2.0 Revolution (4) the Google Paradigm

Google does not expect to be the biggest pageview generator in the world, because it knows that most pageviews happen outside Google.

[+] Google profits without being a monopoly

In February 1999, I brought up with the rule: for a media company to make a profit from advertising alone, it must be a monopoly or oligopoly; yet no one can monopolize the Internet, so finding other revenue sources other than advertising is a requisite. My argument at that time was based on my reflection on the nature of the media per se, though few shared the same with me.

So far my idea has proved true, but still I've missed a fact: the energy derived from declining storage and bandwidth cost on the Internet and the continuing advance of technology has continued to build up to a degree so overwhelming that it starts to transform the cost structure of the Internet media business and to overturn the old rule.

"One need not monopolize to make money from advertising," - this is one new paradigm brought forth to the world by Google. And here's another - "there is no need for users to stay on search engine websites; they'd better leave as soon as they've found what they want."

Ten years ago search engine operators worried about the low average pageviews per visitor, so they came up with numerous services in the hope that users would stick longer so as to increase pageviews and ultimately more advertising sales. Yet what Google has been doing is contrary to this thinking, which is very much like a relentless blow to the old-minded operators.

If we look at Google's tricks, we will find that, on the technology side, there are two key factors: raising search accuracy and lowering average search cost (few people talk about this); on the business side, there are also two factors: keyword advertising - AdWords - and profit sharing with other website operators - AdSense.

[+] Google's very Web 2.0 business model

As mentioned in my previous articles, the fetal weakness of the Internet advertising business lies in the declining average advertisement price. There are two main reasons: exploding web pages divvy buyers' advertising budget and the embarrassingly low click through rate (CTR) is unattractive to buyers.

However, when search engines start to display advertisements based on users' search keywords, the CTR goes up dramatically to above 5%, an uplifting figure only seen during the Internet start-up period a decade ago. For buyers it means the improvement of advertising effects, which consequently leads to the rise of advertisement price.

This business model was not an original idea of Google, but Google is able to make the best use of this model with its extraordinary technological capability and unparalleled search accuracy widely recognized by Internet users. Google has attracted the highest search volume and thus obtained the most advertisement clicks.

However, few people would come across the idea that Google's advertisement approach is very Web 2.0. One of the major features of Web 2.0 is "many a little makes a mickle;" small forces can add up to a big change. In fact, keyword advertisements appeal mostly to small and medium enterprises (SME's).

This is very different from the approach of traditional media (or traditional Internet media) which focus on alluring major buyers with big advertising budgets. Google instead looks at all SME's in the world, whose advertising budget spending in total can be no less than that of big advertising buyers.

[+] The cost is low to do business with a large number of small clients

Imagine you own an advertising agency company, and you want to do business with small companies worldwide. Considering the difficulty and cost that might occur, at the end you would only deal with a couple of rich clients as it is the most cost effective.

Yet again we see the magnificent result caused by the ever-declining Internet storage and bandwidth cost: it becomes acceptable to do business with SME's around the world! It is perfectly possible to grab big profits at a lower cost - an idea that was totally beyond imagination in the past!

Furthermore, we see advertisements provided by Google on other websites from time to time, too. This is Google's AdSense service working here. It allows other websites to display advertisements sold by Google and to share the advertising sales profits.

In fact, there are many small and medium sized websites over the world which makes considerable money by displaying Google's advertisements and sharing the advertising revenue. Once again, Google takes in the traffic on small and medium websites around the world and amasses a volume comparable to that of large-scale portals.

Google can profit without snatching a dominant share of major advertisers' budgets. It can make money without monopolizing online traffic. It does not expect itself to be the website which generates the most pageviews in the world, as it knows most traffic flows outside Google. To this point, the Internet media paradigm is completely overthrown.

[+] The "Long Tail" paradigm

The figure above is inspired by the Long Tail theory which has been very popular these years. The Long Tail theory was first brought up in 2004 in a US magazine Wired by Chris Anderson, who talked about the phenomenon of mainstream meltdown from Amazon's list of sales items - he found a great many of them were not in very popular demand.

Later, Chris Anderson continued to elaborate his theory by describing possible future economic patterns and these articles were compiled into a book and published in 2006. However, in my opinion, the Long Tail theory has been realized by Google since long time ago, and what has been manifested here is a true Web 2.0 spirit. Please allow me to reiterate that:

The root of the Internet revolution is but one thing - the ever declining cost of digital storage and transmission bandwidth. Socially, it is reflected on "the continuously falling cost of interpersonal communication; on the business side", it is "the gradual disintegration of enterprises which used to thrive on their monopoly of capital and information".

Our intention here is not to praise the vision or greatness of Google, but to contemplate on one thing: while the above mentioned cost continues to drop, those who can makes the best use of this trend to reach the most businesses and users will be able to get hold of this revolutionary power. So, are there any other business models yet to be developed? (
2006/09/17 - By Digitalwall.com - Way to
China Internet/Telecom )